Orange Capital Releases Detailed Presentation On Why It Intends To Vote Against The Merger Of Global Net Lease And The Necessity Retail REIT
$GNL
$RTL
Real Estate Investment Trusts
Real Estate
Real Estate Investment Trusts
Real Estate
- RTL's Retail Real Estate Assets Are Non-Core and Dilutive to GNL's High-Quality Portfolio of Mission Critical, Net Lease Real Estate Assets. Orange Capital believes RTL's mix of multi-tenant retail assets would dilute the quality of GNL's mission-critical, net lease asset portfolio. Retail REITs, such as RTL's real estate portfolio, trade at a discount to net lease and industrial REITs like GNL.
- RTL is an Inferior Business Compared to GNL. Orange Capital believes RTL has a lower-quality portfolio of assets with higher vacancy, higher capital expenditure requirements, lower geographic diversification, higher leverage, and significant multi-tenant concentration in the retail industry. Furthermore, RTL has historically traded at a 1.5x FFO (Funds From Operations) discount to GNL.
- Substantial Dilutive Stock Issuance. The Merger requires the issuance of substantial stock to AR Global at a valuation representing a 49% discount to GNL's NAV, a discount Orange Capital believes is largely due to AR Global's poor performance as GNL's external manager. The proposed Merger also accelerates unvested GNL and RTL stock awards.
- Superior Alternatives. Orange Capital believes the Merger was in direct response to the Blackwells Capital proxy contest with GNL and RTL, and has pinpointed several actionable alternatives that it considers to be superior to the Merger, including: a stand-alone internalization of GNL, a potential sale of GNL to a third party, or the continuation of the current status quo. Orange Capital is confident that the implementation of the GNL Board's (the "GNL Board") proposed governance modifications, whether in conjunction with the Merger or independently, will generate immediate stockholder value.
- Wastefully High Internalization Costs. GNL holds the option to terminate AR Global's external management contract by paying 2.5 times AR Global's current advisory fee, which termination payment Orange Capital estimates would be $83 million in the event of a change of control with an independent third-party. This is in stark comparison to the Merger's proposed windfall payment of $375 million to AR Global (equivalent to 5.8 times AR Global's current advisory fees), a difference of approximately $2.70 per GNL share (a +25% premium to the GNL unaffected stock price of $10.56). Orange Capital finds it deeply concerning that the GNL Board sanctioned this internalization fee without conducting a market assessment of GNL's assets.
- Simplified and Focused REITs Trade at Higher Multiples than Diversified REITs. Orange Capital's research concludes that the market assigns an NAV discount to diversified REITs that own assets in multiple subsectors, like RTL's portfolio, in comparison to those with a focused asset base like GNL's portfolio.
- The Merger Makes it Harder to Explore Eventual Strategic Alternatives, including a Sale of the Combined GNL-RTL. Orange Capital sees a limited pool of buyers for large diversified REITs like the post-Merger entity ("NewCo"), especially one that is diversified across multiple subsectors.
- AR Global's Massive Influence Post Merger. AR Global would own approximately 14% of NewCo, which Orange Capital believes effectively serves as a self-imposed poison pill on future transactions, thereby diminishing the influence of the GNL Board's proposed governance reforms.